Sunday, February 26, 2006

When Sally Dumped Harry

When Harry met Sally and they decided to purchase real estate, a variety of things could have happened as they relate to how title to the property could be held at any given time. This is so because whenever an interest in land is owned by more than one person, a concurrent estate or co-tenancy is created. The parties to the concurrent estate are referred to as co-tenants, or as joint tenants, or as tenants in common depending on the type of concurrent estate that is created. Common Law, in fact, recognizes three types of concurrent estates as follows:

[ ] tenancy in common;

[ ] joint tenancy with right of survivorship;

[ ] tenancy by the entirety.

[ ] Tenancy in common

Tenancy in common is the default form of concurrent estate and is entirely based at Common Law on one and only one principle, referred to as ‘unity’: the unity of possession. In this form of ownership each owner is regarded as owning separate and distinct shares of title, which may differ in size. Thus, Harry could own sixty percent of the title and Sally forty percent, or the other way around, depending upon how their respective contribution towards the purchase was configured. In a tenancy in common, furthermore, there is no right of survivorship. This means that in the eventuality that Harry passed away – say while hunting for quails in South Texas, for example - his share of the tenancy would transfer by inheritance to his heirs and would not go automatically to Sally. Which, of course, would be problematic for Sally if Harry had decided to leave his share of ownership to his long-time drinking pal Felipe, since history would have to be rewritten as in “When Sally met Felipe”.

A tenancy in common may be terminated when anyone of the following occurrences takes place:

[ ] by an agreement between the parties to sell one tenant’s interest to the other;

[ ] by an agreement between the parties to sell the whole interest to a third party;

[ ] by an order awarded by a Court to divide up a concurrent estate into separate portions representing the proportionate interests of the tenants. To this extent, there are two kinds of partition which can be awarded by Court: partition in kind and partition by sale. A partition in kind is a division of the property itself, whereas partition by sale constitutes a forced sale of the land, followed by division of the profits thus realized among the tenants.

It is important to know, moreover, that an original tenancy in common is not terminated merely because one party chooses to sell his/her own interest. The purchaser will simply become the new tenant in common.

[ ] Joint Tenancy

In a joint tenancy, both Harry and Sally would own an undivided interest in the whole of the property. As such, the essential feature of this type of ownership is the right of survivorship, that is when one tenant dies his share passes automatically to the remaining joint tenants. Contrary to the belief of some, there can be more than two joint tenants with each owning an undivided interest in the joint tenancy. Because of the right of survivorship, Harry could not leave his interest to anyone else in his will. Such being the case, upon his death as a direct consequence of the foresaid quail-hunting accident in South Texas, Sally would acquire automatically the whole of the interest in the estate.

At Common Law, four unities must be present and be maintained to create a joint tenancy:

[ ] unity of possession – this means that both tenants must have the right to possess the whole property. If one owner can prove that he or she has been improperly excluded from the property by the other, the joint tenancy will be invalidated.

[ ] unity of interest – all joint tenants must have the same type of interest in land, and the extent, nature and duration of such interest must be identical. For instance, Harry cannot have a fee simple and Sally a life estate, and this is so because in order for them to transfer possession of the estate both must sign the same agreement, so that the type of estate must be the same.

[ ] unity of title – all joint tenants must obtain their interest from the same document, like a will or a deed.

[ ] unity of time – all joint tenants must receive their interest at the same time.

Because of the fact that the right of survivorship could create unfairness, the law will recognize a joint tenancy only if it has been created expressly. If a document transfers title to two co-owners without specifying how title is to be held, the law will presume that they are tenants in common even if the four unities are present.

Moreover, the termination of any of the foregoing unities will result in the law implying that the joint tenancy has been severed. When this happens, it becomes a tenancy in common. Severance usually occurs in one of two ways: by the sale or mortgage of a joint tenant’s interest or by a Court order. The sale, mortgage or attachment of one joint tenant’s interest will create a tenancy in common, but only as far as that person is concerned.

For example, if Harry, Sally and Aunt Trudy are joint tenants and Aunt Trudy sells her interest, Harry and Sally remain, as between themselves, joint tenants of two-thirds of the property but they become tenants in common with the new co-owner of the one-third interest. Many people do not realize that under the law a joint tenant may freely sell, mortgage or lease his interest just like a tenant in common would, without requiring the consent or knowledge of the remaining co-owners. If Harry were to do so, therefore, he would sever the joint tenancy even though Sally was unaware of it – an excellent reason for Sally to dump him for good.

[ ] Tenancy by the entirety

Tenancy by the entirety is a type of concurrent estate available only to married couples, wherein ownership of the property is treated as though the husband and wife are a single legal person. Like a joint tenancy, the tenancy by the entirety also encompasses a right of survivorship, so if Harry dies the entire interest in the property passes to Sally without going through probate. In order for a tenancy by the entirety to be created, the party or parties seeking to create it must specify in the deed that the property is being conveyed to the couple "as tenants by the entirety".

Also, the parties must share the four unities necessary to create a joint tenancy plus a fifth unity, marriage. However, unlike a joint tenancy, neither party in a tenancy by the entirety has a unilateral right to sever the tenancy by the entirety - if it is to be undone, or if any part of the property is to be conveyed to another person, this must be carried out by both husband and wife. A divorce breaks the unity of marriage, leaving the default tenancy – a tenancy in common. Therefore, should Sally decide to dump Harry, title would be held as a tenancy in common.

Predicting the future is always a risky business, often confused with prophecy. But whether prophecy is in fact in a broad sense the prediction of future events, it often implies the involvement of supernatural phenomena, whether it is communication with a deity, the reading of magical signs, or astrology. Conversely, in a scientific context, a prediction is a rigorous, often quantitative statement forecasting what will happen under specific conditions. This is the reason why Economists generally speaking prefer to substitute the expression ‘anticipatory forecast’ to the term ‘prediction’. Anticipatory forecasts enable Economists to make quantitative predictions on the basis of probability – and with no need to use a crystal ball. Economics is, afterall, the science concerned with the study of human activities involved in meeting needs and wants within the context of the equilibrium between scarcity and wealth. John Maynard Keynes (1883–1946) once remarked that "Economics is the science of thinking".

There are in the making at this very moment three socio-economic variables that are destined to forever change the way we think of residential real estate in North America. This is so because all these three events will profoundly impact consumers’ demand for housing products. Ultimately, the basis for the real estate market is the demand by households, businesses, governments and institutions for space and shelter to conduct activities. Consequently, as demand changes in direct function of human activities and economic and demographic variables, conditions within the real estate market change. The variables that will affect demand for residential housing products in the next few years are:

[ ] Cost of energy.[ ] Aging population.[ ] Globalization.

[ ] Cost of Energy

Prices of gasoline are higher today anywhere from twenty to twenty-five percent than they were in 2004 and there is looming on the horizon the expectation that price of crude will top the $80 per barrel in the relatively near future. Researchers peg the cost per bbl at a staggering US $100 by 2010. If this condition will occur, the average consumer will pay $50 for a tank fill up in 2010 as opposed to $25 today. Additionally, the oil industry anticipates that the world global output will have peaked by the year 2015, which then is a sure sign that from then on the US $100 per bbl. price tag will be there to stay for a very long time. Those dramatic increases, former Feds Chairman Alan Greenspan declared almost a year ago, will create a significant drag on economic growth

The silver lining, added Greenspan, is that as oil gets more and more expensive other technologies that use less oil will become more and more competitive. And that seems to be exactly the case. Hydrogen fuel cells, ethanol from vegetable matters, solar cells, wind power, synthetic gasoline from coal – all could make a dent once they are available in sufficient quantities. But the real question is: are we moving fast enough? As consumers we need time to make adjustments – often very expensive ones – to the new technologies. Not everyone can afford to junk a two-year old SUV to buy a new hybrid. Likewise, most people can’t afford to abandon houses built in developments 100 miles out in the countryside at a time when oil was cheap. And although governments, energy and power companies are investing in new technologies, they can’t create a massive new infrastructure overnight. The problem with the free market, as it has been always the case, is that while it may sort out things over the long run, people have to cope in the short run. As a direct and proximate consequence, therefore, the likelihood is high that we may have to endure a tremendous amount of economic and social hardship that could have been averted had we acted sooner.

In light of the foregoing, cities in North America, which are already energy inefficient, are destined to become even more and more so. It is going to cost too much to commute from one side of town, where you live, to the other side of town, where you work, even if you carpool or use public transit. It will become too expensive to heat and light 2,500 square foot homes when, in fact, most people can enjoy them only in their free time over the week-end. A recent study undertaken on behalf of the US Department of Energy details that home heating costs can be expected to skyrocket in the forthcoming years. For example, the Department of Energy predicts that homes heated with natural gas could see their fuel costs explode by as much as 48 percent by 2007. And the cost of home heating oil could surge by up to 32 percent.

It is the general consensus of those involved in economic anticipatory forecasting, therefore, that by the end of the decade consumers will mostly demand smaller living quarters, and more affordable.

[ ] Aging Population

Ever since the first baby of the post-Second World War generation arrived in the world, Baby-boomers have influenced every aspect of society and have pretty much had and done things their own way. But now the ‘boomers’ are getting old. In just five years' time 77-million Baby-boomers will start collecting Social Security benefits in the United States. In eight years they will start collecting Medicare benefits. By the time they are all retired the US will have doubled the size of its elderly population but increased by only 18 percent the number of workers able to pay for seniors’ benefits. The implications of all this for the real estate industry are staggering. For one thing most Baby-boomers will have become empty nesters with children already out of the house and, as such, five-bedroom homes will no longer be neither wanted nor needed. Which in turn means that large, sprawling cities are once again destined to become outmoded, as vertical construction (also known as elevation construction) will take strong precedent.

In Canada, a report of the Urban Futures Institute outlines that the aging Canadian population will consistently dominate real estate markets just about everywhere in the country. Unlike previous generations who were more likely to move into smaller homes, eliminate mortgages and cash in their equity as retirement approached, the Freedom 55 generation, as it is sometimes called, is more likely to upgrade to more expensive properties, while assuming new mortgages. More expensive but not bigger properties. There is a trend identified by the Institute for the boomers to make their way out of the suburbs and back into the city. The Urban Futures Institute prognosticates that as retirement age approaches they will trade down their large mansions in the suburbs for high-class downtown condo living, thus driving prices upwards especially in the most expensive category. More and more the adult lifestyle component will be the major force impacting how condominium complexes will be conceived and built. It will impact developers, architects and contractors alike, not to mention real estate agents.

The Urban Futures Institute report concludes that it is going to be both a lifestyle and a financial choice for the Baby-boomers — closer to downtown means closer to established shopping, restaurants and entertainment and boomers are of the mind the location will offer more liquidity in the long-term.

[ ] Globalization

Globalization is unquestionably a democratic concept that puts all mankind on the same platform. In Economics we have a special phrase to describe this process of equalization: we call it ‘Democratization of Wealth’. The distribution of wealth throughout all nations would be a flawless concept – in a perfect world, that is. But even at the risk of appearing a little too cynical, it must be said that a closer scrutiny reveals one great advantage as well as one great disadvantage associated with democratization of wealth. The great advantage is that as limited wealth resources are being democratically distributed throughout the planet, poorer nations become richer. The great disadvantage, on the other hand, is that as limited wealth resources are being democratically distributed throughout the planet, richer nations become poorer. Poorer and with aging populations too, it might be added, whereas developing countries all seem to be enjoying the benefits of the eternal fountain of youth.

There is a hidden cost to globalization that is beginning to manifest itself more and more in our daily lives. Increasing interest rates, which are now beginning to affect, first and foremost, the real estate market are possibly one of the best examples of it. The emergence of China and India as new players in the international economic arena comes with mixed blessings. China and India taken together represent close to 40 percent of the world’s population. The end result of a supply of outputs created in China and India destined to quench the huge demand of the pre-eminently American consumerism has generated large trade imbalances. The flip side of these imbalances has been a sharp rise in the net foreign liability position of the United States and a massive accumulation of foreign exchange reserves by the Asian countries. China has amassed more than US $450 billion of reserves. India too has seen a marked rise in international reserves, to roughly US $150 billion. Even more striking, as of the end of 2004, all of Asia (including Japan) had accumulated US $2.1 trillion in foreign exchange reserves.

Subtracting this quantity of Dollars from the economic monetary cycles forces the U.S. Government to borrow more and the Federal Reserve System to print and lend more money with the deleterious effect of diminishing the purchasing power of the Greenback by weakening the strength of the currency. Think of a glass of wine where you keep on adding water. Higher international demand for American Dollars created by outsourcing, foreign savings, fixed exchange rates and a huge trade imbalance account for a large proportion of the refueling of domestic inflation and the consequent interest rate increases, the effect of which will be patently felt all over real estate markets in North America in the forthcoming years.

In conclusion, the combined effects of the foregoing three socio-economic events in the making will impact the real estate industry to the extent that demand for inner core, smaller housing units – typically condominiums - will in all likelihood appreciate to the detriment of the single-family dwellings of the suburbs, which are expected to be in lesser demand. And consumers, investors and otherwise real estate market participants can anticipate that interest rates will be on their way up, although gradually, but continuously in the forthcoming years.

Saturday, February 18, 2006

Let’s Kick The Oil Habit !

If anyone harbored even for a second any doubts that hybrid cars are hot, the Tokyo Motor Show held in October, 2005 put them to rest for good. Carmakers practically ran over one another promoting their models in a joint attempt to catch up with Honda and Toyota, the pioneers of hybrid technology. Companies such as BMW, Mercedes-Benz, GM, Porsche, Volkswagen, Mazda and Mitsubishi showed new models or talked about plans to sell them by the end of the decade at the latest.

Motorcars have been my lifelong passion, especially these past few years when I have seen the cost of a fill up of super unleaded gasoline for my BMW 325i skyrocket from $18 to over $27. And this is for a car that is perfectly tuned and pampered like no other, in the shop every 4,000 miles if only for an oil change. This is the reason why I followed the Tokyo Motor Show with a keen eye, paying particular attention to the new hybrid technology. On display were not only regular hybrids – the kind powered by gasoline engines mated to electric motors – but also variations adding hydrogen to the mix. The stakes are high, since the Big Three – GM, Ford and DaimlerChrysler – all reported softening sales with losses for the last quarter of 2005 totaling a staggering $2 billion, due pre-eminently to the plunge in sales of gas-guzzling SUV’s.

It certainly doesn’t take a Ph.D. in Economics to figure out why this is happening: prices of gasoline are higher anywhere from twenty to twenty-five percent than they were in 2004 and there is looming on the horizon the expectation that price of crude will top the $80 per barrel in the relatively near future. Those dramatic increases, former Feds Chairman Alan Greenspan declared almost a year ago, will create a significant drag on economic growth. The silver lining, added Greenspan, is that as oil gets more and more expensive other technologies that use less oil will become more competitive. And that seems to be exactly the case. The question is: are we moving fast enough?

In the United States wind farms already cover breezy hills throughout the West and Midwest, while Canada is extracting oil from the tar sands of Northern Alberta for an amazingly efficient price of $20 per bbl.. And, moreover, the technology exists to convert North America’s huge supply of coal into petroleum. This process, called coal liquefaction, creates a fuel that could power cars and, at current price levels, it is starting to look more and more economically feasible. Conservation too is playing an important role as auto companies are starting to get serious about boosting mileage by replacing steel components with materials like strong, lightweight carbon fiber. At the same time oil companies, fearful to be left behind, are improving their biofuels – new processes for turning woody, weedy plants into ethanol.

If this explosion of innovations has a drawback, however, is that all these developments are coming too late to allow a smooth transition to the post-petroleum era. Hydrogen fuel cells, ethanol from vegetable matters, solar cells, wind power, synthetic gasoline from coal – all could make a dent once they are available in sufficient quantities. But that won’t be for years, maybe decades. Economists and researchers in fact predict that twenty years into the future oil will still be the dominant fuel. Which then basically means that we will just end up paying more for it. As consumers we need time to make adjustments – often very expensive ones – to the new technologies. Not everyone can afford to junk a two-year old SUV to buy a new hybrid. Likewise, most people can’t afford to abandon houses built in developments 100 miles out in the countryside at a time when oil was cheap. And although governments, energy and power companies are investing in new technologies, they can’t create a massive new infrastructure overnight.

The problem with the free market, as it has been always the case, is that while it may sort out things over the long run, people have to cope in the short run. As a direct and proximate consequence, therefore, the likelihood is high that we may have to endure a tremendous amount of economic and social hardship that could have been averted had we acted sooner. Some economic circles even fear that we could see the equivalent of the Great Depression fueled by extreme oil and natural gas prices. The difference between today’s shortage of oil and the previous ones is that in today’s world demand actually exceeds supply. By comparison, instead, the two shortages in the ‘70s were artificially induced. Back then OPEC was powerful and disciplined enough for Middle East oil producers to turn down production in retaliation for the U.S. support of Israel and the Shah of Iran. But now a confluence of factors has made oil shortage inevitable, not optional Topping the list is the unexpected and sudden emergence of India and China as new economic powerhouses.

With the inevitable price jolts to come, therefore, it seems more and more apparent that we are heading straight for a new energy crunch, the type that we will remember for a very, very long time.

Saturday, February 11, 2006

Air Space Strata Plans

At Common Law a landowner has the right to control the air space above the land he owns subject to statutory restrictions for zoning, aviation and the like. As such, landowners may create one or more air space parcels above their land. Once this is done, the title to each air space parcel may then be dealt with separately from the other titles. Since an air space parcel is treated as land, it may be subdivided into strata lots with common property. The vertical division of real property is based on the legal conception of land as a volume of space with boundless height and depth. As the density of building in urban areas increases, fewer sites are available for new construction and land values escalate. This trend has produced a growing interest in developing air rights. This concept of land as a three-dimensional entity underlies the land title scheme in British Columbia, which allows air space parcels to be created, transferred, mortgaged, leased and subdivided.

Since air space parcels still have a physical relationship to the land because air space rights are part of the land and the ownership of land, the Land Title Act allows landowners to treat their air space as if it were land by depositing a survey of the air space above their land at the Land Title Office. Such survey is called an ‘Air Space Plan’. If the landowner keeps the underlying land but allows someone else to occupy the air space parcel, he becomes what it is commonly known as a ‘remainderman’.

Developers have used the air space parcel concept to construct mixed-use strata projects. This method is typically used where the same structure contains different uses. In effect developers creates different air space parcels to contain single-use strata developments. By this means, the same complex may contain one or more separate strata plans, each having a different use. For example, one strata development may be residential while another is commercial. Although they share the same complex each strata corporation controls a separate portion of the structure.

Virtually every air space development involves construction of a strata building over top of land or buildings owned by the developer as remainderman. It is very important to ensure that there are appropriate arrangements to compel the remainderman to maintain the necessary physical support and related services to the air space parcel, even if the remainderman’s property suffers damages. The major concern is that the creation and unregulated sale of such vacant airspace strata lots will, at some future date, through fraud or financial difficulties of a developer, result in the purchasers of such lots being left with vacant airspace strata lots which have little value, as the contracted building will not be built or not completed.

In each air space strata development, furthermore, there should be one or more written agreements between the strata corporation as the occupier of the air space and the remainderman, who is likely the developer. These agreements deal with obligations of support, access, provision of utilities, insurance and other important matters. Finally, the owner of an air space strata lot must be familiar with the relevant agreements between the strata corporation and the remainderman. Since these agreements are usually complex, an owner should obtain legal advice when reviewing such agreements.

Thursday, February 09, 2006

Neuroeconomics In Real Estate

If you suspected all along that the orbitofrontal cortex of the limbic system in the frontal lobes of Buyers’ brains had something to do with their decisions to purchase real estate, you were absolutely correct.

Silly me! And all this time when I wondered what is it that makes Buyers tick, I thought it was the hippocampus. Yes, I will give credit to all those who thought the orbitofrontal cortex of the limbic system in the frontal lobe of the brain is responsible for Buyers’ decision-making process. You were right. The other day when I went to the office and announced it aloud, half of the people went into a deep coma. Even Glen, the office manager, could not believe his own ears. Although, in all fairness to the faculty of perception of the human mind, it could be argued that Glen, afterall, is not human at all - but I digress.

Marketers already seem to know a lot about how we think, but recent experiments in neuroscience have captured the full attention of Corporate America and Corporate Japan. New scanning techniques are making it easier to determine how our minds work and creating hopes in the corporate world that companies can finally figure out how consumers are wired so as to create new connections with customers. And the field of real estate sales is at the forefront of this scientific research. The breakthrough behind all this is the development of functional magnetic resonance imaging or ‘fMRI’, the latest in neuroimaging technology, which displays not only the structures of the brain but also how they actually function by measuring blood flow. And the corporate world is particularly interested in how neuroimaging can be applied to study empathy, trust, deception, emotional communication, body language and generally speaking all issues that are central to human existence and interaction. Decision-making is, of course, at the top of the list.

The big question for Neuroeconomics is to discover how the human brains make decisions the likes of which house to buy or what to have for lunch. Research is showing that the limbic system, which governs emotions, often overrides the logical areas of the brain. This would suggest that contrary to what most of us believe, humans do not make rational decisions, at least not preeminently but, rather, their conclusions are rooted into deeper sources of motivation located well within the realm of sub-consciousness. And the corollary of all this, researchers seem to be suggesting, is that all those interested at aiming at consumers’ decision-making processes (such as myself) should really look beyond the mere sphere of logic and should perhaps try to appeal to the fuzzier side of how people feel about themselves, about others around them and about the corresponding environment. It is, afterall, a tenet of psychology that the outer world solely exists really in the perception of one’s own mind.

Even Hollywood is jumping into neuromarketing. In the Social Cognitive Neuroscience Laboratory at Caltech experiments are well under way to help studios select trailers for new movies by scanning viewers as they watch a series of scenes, so as to find out which scenes elicit the strongest reactions in the parts of the brain that are associated with reward expectations. And market-research laboratories in Tokyo are similarly scanning consumers to identify emotional reactions to houses, apartments, and city neighborhoods shown on large LCD wall-mounted monitors. Although there are some concerns that neuromarketers could use the new technology unwisely to peer into our brains and control our buying behavior, researchers are quick to point out that such fears are misplaced. They contend that science is merely trying to understand what goes on in human brains so as to ultimately help people understand themselves as well as each others better.

No matter the ramifications, it would certainly appear that Neuroeconomics is destined to help us better understand the cognition that occurs when we analyze our options and then choose one. As such Neuroeconomics, although a relatively recent approach to biology and human behavior, shows promise of contributing to knowledge in a wide range of areas , including such emotional fields as real estate sales.

Time – a very ephemeral and yet very real concept. As time goes by economic variables shift as the dawn of one generation approaches and the next generation is ready to spring forward.

In just five years' time, 77-million "Baby Boomers" will start collecting Social Security benefits in the United States. In eight years they will start collecting Medicare benefits. By the time they are all retired in 2030, the US will have doubled the size of its elderly population but increased by only 18 percent the number of workers able to pay for seniors’ benefits. Economists regard the commitment to pay pension and medical benefits to the elderly now and in the future as part of the government's "implicit" liabilities. And the size of these government’s liabilities is such as to render the US Government in effect bankrupt. The scale of this implicit insolvency was exposed recently by the Federal Reserve Bank by comparing the present value of all the revenues the government can expect to collect in the future with the present value of all its future expenditure commitments, including debt service. The shortfall was a staggering $44,000 billions. In comparison the federal debt - $6,500 billion - is small change. Canada fares slightly better – but not very much.

In today’s ‘globalized’ world there are two types of economic imbalances. The first relates to the way savings and investments are being distributed across countries in an increasingly uneven way. The second is the possibility that, over the next couple of decades, the global economy might face a protracted period in which savings exceed planned investment, partly because of demographic trends. The United States face a large and growing current account deficit, which reflects an excess of investment spending relative to domestic savings. This is matched by growing current account surpluses in Asia, in oil-exporting nations, and in some other economies around the world.

Geographical imbalances are not necessarily a bad thing, nor are the large capital flows that they generate. Indeed, there should be a process that works through world financial markets to allow savers in one country to lend to borrowers in another. Such a process leads to higher global growth, since countries with surplus savings can invest in countries that do not generate enough savings internally. However, when imbalances grow at an unsustainable pace, as it appears to be the case at present, some form of correction must take place. The optimal correction will require greater net national savings in the United States. Investment in the U.S. economy will need more financing from domestic sources—be it from the household, business, or government sectors—and less from foreign sources. This implies an increase in net U.S. exports and a decrease in net exports elsewhere in the world, as well as an increase in domestic demand in other countries for American goods.

As it relates to the second type imbalance, that is the possibility that over the next couple of decades the global economy might face a protracted period in which savings exceed planned investment, if countries do not have the appropriate structural policies in place there is a risk of a prolonged deficiency in global demand in the future. There are in the making right now two trends that will be important over the next decade or two. First, we can expect that Asia's share of the world economy will continue to grow. For various reasons, Asian nations traditionally have had a higher rate of savings than other economies. And so, all other things being equal, we can expect that global savings will rise. The second trend that we can expect is higher savings in most economies of the Organization for Economic Co-operation and Development (OECD) as the Baby-Boom generation prepares for retirement. Taken together, these two trends can certainly be expected to lead to a higher level of savings worldwide. Therefore it is going to be critical for policy-makers to act now, so that there can be an increase in demand and investment – and thus consumption - to compensate for the increase in savings.

How policy-makers handle the events of the next ten to twenty years will be critical in preparing the global economy for the period from roughly 2020 on, when the proportion of the working-age population will start to decline in many countries. While demographic trends in the United States will likely be challenging, in many OECD countries as well the old-age dependency ratio is poised to rise sharply. According to a study by the European Commission, by 2025 the European Union will go from a ratio of roughly four working-age persons for every senior citizen to a ratio of 3 to 1. Indeed, without radical changes in fertility rates, life expectancies, or migration patterns, populations in many parts of the world will start declining, even as the world's total population continues to climb. According to the United Nations, the population of the EU could start to decline by 2025, with China expected to follow by 2050. Just last year Japan reported a drop in its male population, and the number of deaths in that country began to exceed the number of births.

For most OECD countries, the era of declining labor force and corresponding population drop is still at least a couple of decades away. Before we get there, we will first go through a period when savings are likely to rise. Workers in many countries can be expected to try to increase their savings for retirement through rising prices of assets, such as houses. However, real capital appreciation per se is not enough to sustain growth in the long run To spur consumption, increase demand and then again generate production and capital growth there must be present a component of liquidity that can only be obtained with a corresponding increase in saving from income on the part of the productive and working section of the population.

In conclusion, it will be wise for policy-makers especially in North America to encourage maximum economic flexibility so as to generate domestic investment and growth, and not to rely too much on foreign capitals particular in light of the forthcoming demographic changes here and elsewhere.

Wednesday, February 01, 2006

Underground Oil Storage Tanks

If you are selling a single family home, townhouse or condominium apartment built before 1957, chances are there will be an underground oil tank on the property. This is so because many homes built in North America back then were originally heated by furnace oil. The wisdom of the time was to inter tanks generally in the backyard or the side of the house, and when natural gas made its way into our society all those tanks were filled with sand or even capped - and left where they were. In most cities nowadays no accurate data is available on the number of tanks and their exact location. But one thing is known for a fact: those tanks were never removed, and they are still underground.

It is a well known fact that oil tanks underground, even if capped and filled with sand, constitute a considerable environmental risk because they are prone to corrosion and rust. It is impossible to empty tanks entirely and any remaining oil can leach into the ground with time and find its way into the drainage system. From here it can then flow into neighbouring properties, into the storm sump and waterways including ditches and streams. It can contaminate water and pose a hazard to wildlife.

Throughout British Columbia, municipal and provincial by-laws require that tanks that have been out of service for two years or will not be reused must be removed from the ground together with all connecting piping and dispensers. It is always advisable for property owners to hire a contractor experienced and that specializes in underground oil storage tanks removal. In most municipalities, furthermore, before any work goes under way a permit must be issued by the pertinent Fire Prevention Department and all conditions noted on the permit must be followed. The proper procedure for removal is outlined as follows:

Oil remaining inside the tank must be pumped out and taken to a recycling or disposal facility.

The tank must be removed together with all connecting piping and dispensers.

The soil must be assessed for contamination. If contamination is present, soil and groundwater must be properly remediated, which may include complete overhaul and removal.

The property owner must get a letter from the removal company detailing the removal process, what was pumped out of the tank, its quantity, a receipt from the facility where the tank was taken to and the amount of dirt brought in. Photos must also be included.

Following are typical situations that affect dealings with properties containing underground storage tanks as affected by British Columbia Law:

There is a home for sale. Both Buyer and Seller are aware of the existence of an underground oil storage tank. The Buyer agrees to buy the property 'as is'. Who is liable for the tank removal ? The property owner (Seller) is responsible for the tank removal.

Both Buyer and Seller know about the tank. The Buyer says the law requires the Seller to remove it. What happens if the Buyer reports it ? As the property owner is responsible for removing the tank, City Hall would respond by sending a letter outlining time periods for removal. Failure to comply would result in the prosecution of the property owner.

A property contains an underground storage tank decommissioned ten years ago in compliance with the law at that time, which required homeowners to remove contents and fill it with sand. How does the current law affect the property now ? The tank must meet current by-laws requirements, which means it must be removed from the ground.

What happens if a property owner is demolishing a house and finds a tank ? The tanks must meet current by-laws requirements, which means it must be removed.